Scott Sumner, in a recent blog post, has suggested that the following question be put to Bernanke at the next press conference:

Mr. Bernanke: In 2003 you said that neither the money supply nor interest rates were reliable indicators of the stance of monetary policy, and that only nominal GDP and inflation were good indicators of whether policy is easy or tight. Given that both of these variables have grown at unusually low rates since 2008, would you say that monetary policy has actually been relatively contractionary over the past four years? If not, what indicators would tell you that it has been highly accommodative? And please note that I am asking for indicators, and not a mere listing of actions undertaken.

PLEASE PLEASE PLEASE for the love of god somebody ask him this question in public at the first opportunity.

I advise the author of the above article to read a few basic academic articles regarding how monetary policy actually operates before claiming such things as the Fed is aggressively missing its target.

It is difficult to have much sympathy for the position that a forecast of 1.2%-1.7% is an aggressive miss of a 2% target. In any case the Fed has always paid more attention to core inflation forecast on target 1.7%-2%, recognising that commodity prices are highly volatile and chasing them in either direction will result in sub-optimal policy -note that when oil prices were rising & US inflation was close to 3% the Fed continued with expansionary policy.

Lastly, monetary policy operates with a 9-18 month lag therefore inflation in 2013 and 2014 is more importantant in setting monetary policy than inflation in 2012. These inflation rates are on target therefore the Fed's stance is appropriate.

Stock market bulls, please just accept your bullish positions are bullshit and will lose you money & stop this special pleading for Fed bail outs, same people will get on their high horse arguing morally against government bail-outs for the poor in the form of the US's limited unemployment & food stamp program. Quite pathetic.

Brilliant post! This sums up so many things that have been on my mind, chief among them: if this is the best Bernanke can do he'd better explain himself.

Monetary policy is conducted in accordance with monetary theory. Currently, the preexisting Keynesian literature does a pretty good job of explaining our current economy, and how the economy has responded to the Fed's weaksauce policies. If Chairman Bernanke is just going to toss out that theory, and sit on his hands, he better offer some pretty good reasons for doing so.

Are you kidding? They have held interest rates at zero for four years. As one Fed member explained on TV recently, the biggest gun in the Fed arsenal is the interest rate. Next comes QE.

Jawboning (the Fed advertising it wants higher inflation), the main tool of rabid monetarists, is a very weak tool. Samson may have slain ten thousand with the jawbone of an ass, but Bernanke ain't no Samson.

The Fed has shot its wad. Anything else it does is just firecrackers to entertain the econ wonks.

Keep in mind one of the main principles of economics - diminishing marginal returns. With each successive attempt at stimulus the results will diminish even if the theory is 100% perfect.

The above article is exactly the reason I stopped subscribing to the Economist. Looks like Economist has joined the ranks of bankers and hedge fund managers who want capital assets to rise in value. All they want is money to be printed freely. I can tell you money printing is not going to lead to any economic recovery.

Time was when The Economist was a more serious journal - now it is just a cheerleader for oligopolists.

It wouldn't work. If you spend a million dollars more, someone else will spend a million dollars less, because the market will adjust velocity to keep NGDP on the Fed's implicit growth path. No amount of stimulus will work, so long as the Fed's (implicit) NGDP target is too low. We know it's too low, because (a) the NGDP trend line fell off a cliff in 2008, and hasn't recovered, and (b) every time spending creeps up to move us forward along the SRAS curve to full employment and higher prices, the Fed tightens policy to make sure that inflation does not even approach, let alone exceed, 2% - despite the fact that we're going to need more than 2% inflation to return to the trend price level, and still more than that if you account for the fact that we've had negative supply shocks as well (mostly due to government meddling) which means that the equilbrium price level, where we have the non-permanently accelerating inflation level of unemployment, is probably above trend right now. So we should really focus on getting NGDP back up to trend. But that would mean allowing >2% inflation at some point, which this Fed won't do. So no, your "helicopter drop" won't work for the same reason fiscal stimulus didn't - the Fed won't let it. It has set the path of expectations too low, and aggregate spending will come in line with those expectations, regardless of what you individually decide to do with your money.

Bernanke's head? he is just the spokesperson for a 19 headed hydra. He lacks the leadership to move the committee forward. He's just reporting on the collective action of a giant sheep herding exercise.

"We don't know how this would work" is a flimsy excuse? They know that they don't really know what this lever does, but you're blaming them for not moving the lever?

What are you thinking, R.A.? "What's the worst that could happen?" Are you thinking "It *has* to help, it can't possibly hurt?" Given that in the real world actions often have unintended consequences, Bernanke's caution is at least as appropriate as your naked optimism.

Right! Rabid monetarists see no evil in their plans. But a good economists weighs the costs against the benefits. That's hard to do if you see no costs whatsoever to your strategy.
On the other hand, people like RA may think that unemployment is such a horrible thing that there is no cost too great to pay to end it.

No. It cuts against rabid monetarist theory, but not mainstream neo-classical theory, the dominant theory on money in academia today.

“…against his own impressive academic work…”

Which demonstrates how out-of-touch most of academia is today. When confronted with reality, Bernanke changed his mind. So?

“Indeed, a simple communication indicating that the Fed would welcome inflation temporarily above target while unemployment remains high, combined with a new round of QE to show markets it means it, would prove strongly expansionary.”

The UK did exactly that and failed. I would love to see Bernanke take RA’s advice just to prove to RA that his pet theory is a failure. BTW, RA’s theory failed miserably in the 1970’s, too.

“None of us know precisely what is going on in Mr Bernanke's head. Maybe someday we'll all find out.”

We don’t have to be mind readers and we don’t have to wait. Bernanke has made it clear that he doesn’t think more stimulus will improve job creation.